What are Ethereum Smart Contracts and how do They Work?

Since it was first proposed in 2013 by its creator, Vitalik Buterin, Ethereum has managed to grow exponentially and become a serious competitor to bitcoin and other digital currencies. For those who do not know, it’s worth pointing out that Ethereum is a blockchain-based, public, distributed computing network that also offers smart contract functionality.

This is achieved through its decentralized virtual machine known by the name of the Ethereum Virtual Machine or EVM, and which can execute various forms of peer-to-peer (P2P) contracts, as long as it is fed ether, which is Ethereum’s very own digital currency. Vitalik got the idea of building Ethereum after arguing with the bitcoin core developers, and telling them that the platform needs a better platform for development, including a more efficient scripting language.

At this moment in time, there are several key differences bitcoin Ethereum and Bitcoin, the main one being the fact that Bitcoin is meant as a payment-based blockchain network, whereas the Ethereum network is built to facilitate and execute smart contracts. Not only this, but the bitcoin blockchain network works via small taxes sent by the people taking part in the transactions. The Ethereum network is quite similar, as Ether is the digital currency being used to pay the transaction fees alongside with some of the computational services being offered on the network.

What are Smart Contracts?

Understanding smart contracts and how they work is essential to truly understand the importance of the Ethereum network. With this in mind, smart contracts represent applications that have their state stored in the Ethereum blockchain. With this in mind, they can serve various purposes, including facilitating, verifying or enforcing the performance or negotiation of a certain contract. Basically, the Ethereum network is more like a single shared computer being run by a vast network of users who have their resources parcelled out, but also paid for with the help of the Ether currency. At this moment in time, there are numerous forms of Ethereum smart contracts, yet all of them can be implemented using various Turing scripting languages.

What are the uses of smart contracts?

At this moment in time, Ethereum is being used as the platform of choice for all forms of decentralized applications, but also smart contacts and decentralized autonomous organizations, which have dozens of different functioning applications built and operating at the moment of writing. The purpose of these applications tends to depend, but so far, we’ve seen apps covering numerous niches, such as finance, farm-to-table produce, electricity pricing and sourcing, sports betting and the internet-of-things. Numerous companies have also taken advantage of the Ethereum network, and have implemented various forms of enterprise software, which allows them to remain transparent, while also finding better ways of carrying out their work.

Smart Contract Issues

The Ethereum network and its smart contracts being posted on the public blockchain have experienced several issues so far. One of the biggest ones is that most bugs and security holes are available to all people, but cannot be fixed quickly unless consensus is met and the core script if changed. There have been several attacks of this form, which have cost the Ethereum network millions of dollars. In fact, one example is the June 2016 attack on The DAO, which could not be stopped. In fact, the funds were returned afterwards, thanks to the hard fork that took place, and which managed to restore the hacked transaction on the Ethereum blockchain. After this hack, it has been proven that the process of researching and formally carrying out verifications on the network can be quite difficult to do in practice, due to how vast the network actually is. There are certain tools developed by companies such as Microsoft, meant to better verify contracts. Researchers have also concluded that a large-scale analysis of the Ethereum network and its published contracts may actually showcase a wide variety of vulnerabilities.

Getting Involved

Using Ethereum can be quite difficult at first for those who do not have coding skills, or a vast understanding of networks and computer mechanics. However, things aren’t that difficult for those who have a little bit of background, and are willing to learn Solidity, a great programming language meant for smart contracts. Learning it can allow coders to create their very own tradeable digital tokens, compatible with any wallet and exchange, and which can be programmed as required. Networks can also be set up, and vast transparent and decentralized applications can be built.

Based on everything that has been outlined so far, the world of Ethereum smart contracts has often been described as difficult to grasp, yet those who truly want to do so will quickly be able to. Smart contacts are still at the beginning, but as the internet era has taken over the world, they will surely become considerably more popular, and start being used by billions of people from all around the world. While reports have in fact stated that the Ethereum platform may encounter both legal and technical problems, later on, chances are that it will overcome all of the issues, and thrive in this sector of the market.